tv Bloomberg Technology Bloomberg May 20, 2019 5:00pm-6:00pm EDT
chang in sanily francisco and this is "bloomberg technology." mixed messages. the u.s. department of justice is leaning against approving a $26 billion merger between sprint and t-mobile while the chair of the fcc has endorsed the deal. we will tell you what is next. google is cutting off supplies and services to huawei along with a slew of u.s. chip companies. the latest on the saga of the
blacklisted chinese telecom. tesla stock falls to its lowest level in more than two years as concerns pile up about growth. one analyst calls in a code red. first, to our lead. the u.s. justice department is leaning against approving proposed takeover of sprint because what the companies have proposed is not go far enough to mitigate -- proposed not go far enough to mitigate antitrust concerns. shares of both companies dipped when the news broke but they finished in the green. willman ajit pai said he recommend approval. i want to bring in the reporter who broke the story, david. and peter in california. who has the authority, the sec or -- the fcc or doj? avid: approval of both
agencies is needed as well as state attorneys general. it is very common to have the justice department and fcc approve a deal. they both have different standards when considering approval. the doj is focused on competition. will emerge early to higher prices for consumers. the fcc has a much higher standard, the public interest standard. on thely, they come out same side of a deal. they work very closely together. here, it looks like doj is leaning against the deal. the fcc chairman today announced that he intends to recommend approval. emily: obviously, this has been a long time coming. there have been many twists and turns. both companies have suggested concessions they can make. it sounds like the doj doesn't think there has been enough.
what is your perspective on whether this is good or bad? time: i spent a lot of with the doj and also with the chairman and commissioners. the doj is concerned about the anticompetitive nature of this merger. one thing they are pushing for is the divestiture of boost. i was surprised to read that today because i thought the divestitures they offered was actually something the doj would have actually saw as a positive. i'm not as concerned about t-mobileprint, the new -- i think i was always concerned about the prepaid and i made that point to both the doj and the fcc and commissioners. i think the commissioners have made the right decision who have come out for the mergers because he really does protect the low income customers. the high income customers, you know that the new t-mobile is
going to be fighting tooth and nail with verizon and at&t. it is the prepay part. at&t has only just started warm up to it. no doubt that t-mobile and sprint have the lions share of those customers. the other part which was quite surprising is that there was no mention of divestiture of spectrum. i would have thought that would have been something the doj would have prepared -- would have preferred to happen. i'm surprised that wasn't mentioned. having said that, they made the right decision on the divestiture of boost. the promises they have what you aree of talking about, and that they pledge to not raise prices while that network is being built. david, where do those promises stand, including boost? david: except for the
divestiture, those are the sort of behavioral conditions that this justice department has made very clear it doesn't like. an issue that came up when at&t tried to buy time warner last year and the justice department sued to block that deal. it is possible here that the companies could make additional divestiture that would satisfy doj. it is not unusual for the department of justice to look for different remedies. there is sometimes a split with the eu and doj. that is possible here. you can see another one of the pre-put -- prepaid brands being sold, possibly spectrum. that is always a possibility as a way to get the justice department on board. what is -- if it squeaks
through? david: the statement made today about the -- peter: the statement made today about the divestiture of boost, there's a lot of that -- a lot of devil in the details. the question is, who is allowed to buy it? is at&t or verizon allowed to buy it? is tracfone, who is a competitor, allowed to buy it? and who is going to police those? who is going to ensure that you get the best deal you are going to get to be able to compete against a metro brand. there's a lot of details. who is going to police that? who is going to oversee to make sure the deal that the new owner of boost gets gets the right ability to be able to compete. i'm still waiting to hear the details. that is going to be left to the new t-mobile to sort out. doj comes on board, are they
going to play a role in that? there are certain people who should buy it or certain people who shouldn't be buying it. i'm waiting to hear the details because at this stage, they are very light. emily: the fcc would still need to vote on the deal even though the chair said he would endorse it. we spoke to fcc commissioner brendan carr earlier and take a listen to what he had to say. >> part of our years long review at the fcc has been looking at competition issues. when you look right now at combined -- look right now, a combined sprint-t-mobile would have the same size and scale of verizon and at&t in terms of customers for the first time. what our record showed is that there would be big benefits for consumers in terms of the new competition you would see. like he isit sounds in favor. an indication about how the rest of the fcc feels despite the
potential pushback from the doj? think you would expect that. the fcc is controlled by a jeep pie. -- controlled by ajit pai. there are three republicans. you would expect the deal would get approval even if the two democrats on the commission vote against it. at the justice department, it is one man's decision, the head of the antitrust department. there is no committee. he was aggressive on at&t and time warner. he really surprised a lot of deal watchers when he sued to block that deal because those companies are not direct competitors. on its face, this deal, putting aside the promise of 5g, would be anticompetitive because it is combining two of the four
national carriers, a deal that doj opposed when it was proposed in 2014. emily: how much longer do we expect this will take to fully play out? at this point, that is not clear. the doj does not have a shot clock like the fcc does. that could be a timing agreement where both sides have reached an agreement on when to come to a decision. those are typically not public. i don't know of one. they could take weeks, months before a decision is reached, or it could be much sooner than that. it is hard to know. thingsi think one of the that is important to remember is the longer this takes, the more impact it has on the consumers, the staff, the employees, the dealers.
this is not a bottle of wine. this is not getting better with age. they need to make a decision on this fairly quickly to enable the people out there who are unsure about where they need to be. i think a decision would need to come out now. i think the doj needs to do something fairly quickly. this insecurity is not good for consumers and certainly not good for the staff of sprint. boost peter adderton, mobile founder, and our very own david mclaughlin. thanks. snap has announced anderson will take over as interim ceo. chiefhas been named people officer and will be in charge of bringing in new talent. coming up, the trickle-down effect of president trump's battle with huawei. google is suspending business with the tech giant.
emily: the trump administration blacklisted huawei and threatened to cut it off from the products it needs to make its products. this hamstrings the number two smartphone vendor in the world. isthe same time, huawei facing multiple battles including the arrest of its ceo and canada. they are facing an increasingly hostile u.s.-china trade war. ben brody and with me here in san francisco, bloomberg tech's
mark bergin. you have some details on alphabet in particular and google talking -- google cutting off services and hardware already to huawei. mark: the confusing thing here is there are kind of two versions of android. one is the one that google supports and gives to key partners like samsung and huawei. outside of china, that provides it with gmail, google -- google maps, youtube, all the basic google properties. they are saying, on future phones that huawei sells, they won't be able to have any of that as well as access to google's play store. emily: they won't have gmail, google play. mark: certain versions of those apps but they are not something google can use. emily: what is the very latest that we know about the u.s.
position towards huawei? two before minute or i came on, the commerce department it seems modified a little bit the restrictions on huawei. it is an evolving situation but it seems that they will be able to continue some of those existing business lines. they will be allowed to do some security patching and updates of their existing network infrastructure. that is for about 90 days. the exact details remain to be seen but i think the take away here -- this is an evolving situation. the commerce department has rulemaking to do around this. what exactly is permitted for us to bring in from huawei as well as american companies to be selling to huawei? two-pronged is a order. that did -- the justice department should be making
moves -- making rules on that. i expect a lot of lobbying around what those rules should be and the terms and the executive order of what they do and don't allow. emily: you had chipmakers qualcomm, broadcom plunge over the weekend and into today. they are big suppliers to huawei. mark, does what ben just reported impact google's position? mark: an interesting place to look is europe. huawei has a pretty good position there. last year, a big antitrust ruling around android. they told google, you can no longer bundle all your services like they do in the u.s. where you buy an android phone and it comes with a suite of google tools already in the phone. in europe, huawei and other carriers and partners and rivals have a chance to jump in and sell their services. you are seeing this kind of splinternet between china and
the west. places like europe and latin america where huawei does have pretty big distribution. there's potential they could kind of move forward without google. emily: i have a chart here that shows the impact this has had on some of the suppliers to huawei over the last couple days. how do we expect the situation to evolve? obviously, we are in the middle of a trade war and it seems like positions on both the u.s. and china cider hardening and the u.s. government -- china side are hardening in the u.s. government says it has nothing to do with a trade war but it is certainly hard to separate the two. ben: it is a little bit disingenuous because trade negotiators always keep an idea of the broad range of levers they have. they are not necessarily going to interfere in another agency, but they are aware of where they have vulnerabilities and strengths in engaging with another country.
i think what is really instructive here is what zte went through last year. basically, they had to go to the very highest levels. get donald trump to get some of this reversed in the trade negotiation. it was a very similar overlap of national security issues and trade issues as the u.s. and china were trying to work on it and seemingly kind of failing. i think what you are looking at now is trade talks have largely broken down between the u.s. and china. just about a trade war but a cold war, and overall ramping up. a scary possibility but something people around here are talking about. emily: the question remains how much this will hurt huawei. the huawei ceo said this will not hurt them that much.
they have been stockpiling supplies. as the second-biggest smartphone provider in the world that relies on android, how much of a blow is this? mark: it has been a huge growth for them. five years ago, they were nothing and now they have surpassed apple. they've been working a lot on their own components and chips. google has proven that software is very difficult. been -- so that is going to be critical to their business moving forward. emily: bloomberg mark bergin and ben brody in washington. we will continue to follow the twists and turns. coming up, tesla's problems keep adding up. one analyst says the carmaker is about to face hurricane-like headwinds, next. ♪
aily: tesla stock took beating monday over growing concerns of the company's road to profitability. described tesla's predicament as a code red situation and slashed its price target by $230. concernd he also has about the underlying demand. off, it comes down to demand. the model three demand has not started to uptake in the u.s.. down toe, it all comes profitability in the second half. that is really the issue here, the concern on the street. it is really the perfect storm forming for tesla which is concerning us more and more. honest, 230,o be that is kind of bullish, isn't it? now, this continues
to be a difficult stock in terms of getting your arms around valuation. if profitability does not come in the second half, they will have to raise $1 billion to $2 billion more of capital. we are why right now cautiously optimistic that they can get through this period. i will tell you right now, some hurricane like headwinds for musk and tesla going forward. like focus is on things taxis and insurance. >> let's talk more about your price target. right now, down more than 6%, around $196. $230.e looking for the biggest risk around that price target, what is it now? dan: the biggest risk, profitability. at that point, they would have to raise more capital and
valuation goes downward. second half, they need to have profitability. that is why musk is raining and expenses left and right. they know that. the second half, if you don't get profitability, you will have to go back to the capital markets. >> if you say all bets are off, is there a risk that this spirals out of control? dan: right now, we don't see that. they are well-funded. the core complex of tesla continues to be there. i viewed this as an extremely turbulent period. analyst dan ives this morning on bloomberg television. how are other analysts reacting? >> this is the only sort of price target we saw lowered today. dan put out his note last night. sort of a great way to start the week. i guess dan just lowered his price target like a month ago
from $365 to $275. you are starting to see the back to back downgrades, which is unusual. dramatic. it feels like a falling knife right now. you have all these negative catalysts, the ntsb report about another autopilot death, analyst downgrades, concerns about model three demand. emily: car battery fires? dana: there have been some car battery fires. to be fair, there are car battery fires concerning other cars as well. we won't get any data from tesla until july when they reveal how many cars they delivered in the second quarter. emily: lots of metaphors here, falling knife. code red. i've got a chart here in the bloomberg that shows the way the main -- the way demand is should we go, which is one of the
things -- demand is shaping up, which is one of the things dan ives is worried about. dana: tesla has said they will deliver 90,000 to 100,000 cars in the second quarter. cars in the u.s., europe, china. getting visibility to how that is going on all three continents has been very difficult. they also say they will deliver 360,000 400,000 for the year. dan ives doesn't think they will make that. if they don't, that will be a problem. they just raised $2.4 billion. that is why this downturn is sort of incredible. $2.4 billion.ed in nine of the last 10 trading days, they closed down. thank you as always. coming up, ships down. president trump's threat to choke off huawei reverberates across the supply chain.
kind of matter are telling employees look, for now, until we get the resolution, we don't do business with huawei. no more orders, business contact, those kinds of things. they are really shutting down their relationship. could this hurt u.s. companies? certainly, if you are looking at stock, it is not good for qualcomm. >> you and i had the conversation about be careful what you wish for. these companies have been lobbying for years about looking at what china is doing as far as ip, but in those years, china has become more important to them. huawei is the biggest i.t. company in china. they are the equipment provider. that is what you are seeing reflected in the market today and that's why they are justifiably concerned about the boomerang effect. emily: the u.s. seems more
concerned about slowing china down than speeding the u.s. up. what does this mean for 4g or 5g is almost huawei universally believed to have the best 5g equipment? >> at the best price. if you want to roll out your 5g network on-time, you need huawei as a provider. to the extent that u.s. companies -- and it's not the telecom companies because they have already vowed we are not going to do business with them -- it's the smaller carriers in rural areas that will really be affected. and don't forget, to build this gear, huawei needs some of these chips and other components from u.s. carriers, so if you are a global company and you are reliant on huawei, whether you are part of the ban or not, you still need the huawei equipment for your 5g rollout. so, anything that impedes huawei from making its own gear, chips
from u.s. chipmakers, for example, that threatens the 5g rollout globally, and that has edgecations for cutting technology that is supposed to provide ubiquitous, wireless technology to people everywhere. people outside the u.s. and inside the u.s. are going to be affected if 5g is impeded by the ban on huawei. chipmakers concerned? >> absolutely. they won't say it publicly because you don't want to get on the wrong side of this administration, but you saw it coming out of the trade industry association, this is what we want you to say going forward. yes, we want action, we want but perfected -- protected, we would prefer you did it in consultation with us and more measured -- it was written by lawyers who are clearly trying to tone down a very concerned group of companies.
emily: how much will this actually hurt while way? there is some dispute about that. -- huawei? there is some dispute about that. >> if this is all just bluffing on the part of the trump administration as a way of gaining leverage in trade negotiations with china and it's all very temporary, as is a huawei says they have taken precautions. should this become a long-standing ban, that has big implications for while way and its ability to do test for forei -- big implications its ability to do business with u.s. suppliers. chipmakersare
preparing for this? >> it's a good question. to build on what tom just said, you don't go to intel and say can i have a chip please and they just give you one. you have to order these things in batches of thousands and they take three minutes to make per microprocessor. the longer this goes on, the bigger the effect gets. emily: white's next? obviously, while way -- what is next? issue of, there is the the ceo under house arrest in canada. >> is this a negotiating tactic? longer term, i think what you are seeing fundamentally is u.s. companies are beginning to question the viability of the supply chain, much of which goes through china. right now, a lot of u.s. companies are asking, can we rely on, given the politics, given security concerns, given?
marks that the u.s. government is putting around chinese suppliers, can we continue to rely on mainland china the way we have for so many years? , so u.s.gly, it's no companies are having to look at the long-term, where they are going to source materials and components outside of china, and you will see more of that in the coming months. emily: fascinating. thank you. well, morgan stanley banker michael grimes has spearheaded some of the biggest tech deals of the decade including , and more.ynga now the so-called silicon valley once to get to the top of the market -- wants to get to
the top of the market, but how damaged is his reputation? he is legendary inside the silicon valley bubble. most anyone who has had conversations with tech bankers knows who he is. is and hiswho he history and silicon valley. whoe is seen as somebody works on the biggest tech ipos. most banks go out and bring their ceos of the bank out there but he takes the business himself. he is competing with silicon valley. -- in silicon valley with goldman sachs. he is by himself, really close to silicon valley. you go back to new york and some investors here are upset with how much money they have lost on thatso far and unimpressed -- emily: so, what happens with
uber and how much is he being blamed? >> on one hand, people, investors who bought in at the in price and those brought on the hot ipo, including morgan thaney's own clients, more 15,000 financial and visors with a large retail base of clients, dutch advisors with a large retail base of clients -- financial advisors with a large retail base of clients. he also ran facebook's ipo which was notoriously not great as well. there was a glitch on the nasdaq. there was too much demand and
they couldn't handle it. how is that coupled with what happening with uber going to impact his and morgan stanley's ability to gain new tech deals? >> morgan stanley was still at the top of all these lead listings. they are the number one stock trading firm in the world. you need to kind of have them on your side because a lot of trading is going to go through morgan stanley as well as goldman sachs, as well as jp morgan. they were one of the longest standing banks in silicon valley . you are not going to shut off morgan stanley completely, but if facebook is any indication -- facebook, by the way, was much worse than uber and they were back in the game within six months. uber shares have
emily: it was a graduation gift no one knew was coming. robert smith was giving the commencement address at morehouse college this weekend and told the 300 96 graduates of the historically all black in atlanta that the billionaire investor and richest african-american man in the united states that he was forgiving their student debt. >> my family has made a grant to
forgive your student loans. i know my class will make sure they pay this forward. i want my class to look at these alumnus and beautiful morehouse sureers, and let's make every class has the same opportunity going forward. emily: pretty amazing. smith joined goldman sachs as an investor in 1984 working in new york and san francisco before leaving in 2000 to focus on enterprise software. bringt guest wants to back the joy of online shopping and compete with amazon. is it possible to shakeup a market that is always so dominated by one -- already so dominated by one major platform? , aant to bring in imran khan
longtime investment banker at credit suisse. it has been a wild. i -- a while. i am sure you have been thinking a lot about what you wanted to do next. why this? >> e-commerce is now only 9% of the total retail market. i believe over the next decade, 30%-40% of all retail will be online. there are not that many consumer choices when you look for products or having a better experience, or a better way to discover products. we think there is a lot of opportunity to innovate. if you look at markets like china where 25% of the market is there is more in china than in the u.s.. i think there is a better way. emily: you obviously focus on a younger audience at chat -- focused on a younger audience at snap. is there something you learned there?
>> if you look at millennials, they like to do more research before they buy things. they also care about , the economy, sustainability. they want to buy sustainable products. where do you go? we have a lot of different ways to discover products. on our platform, we will have around 200 different ways to find products. it's an exciting new way of shopping for consumers. the market is large and i think there's a lot there. emily: what makes you think you can take on amazon? really admirel, i amazon. i am a shareholder of amazon personally. however, as e-commerce goes from 10% to 40%, one company cannot solve everything. amazon is a juggernaut. they do software and a lot of different things.
of parts of e-commerce is not being addressed. for example, discovery. consumers can give new ways to discover new products. emily: your wife worked at amazon for many years. what secrets does she bring to the table? >> amazon is a big company. worked at a subsidiary and learned a lot there. it's great to work with her. snap: you helped take public. you helped take many companies public, including alibaba. we were just talking about what went wrong with uber and i'm sure you are watching from afar. what is your take on what happened there? >> i don't want to specifically talk about uber but i think if you look at recent ipos, one
thing that stood out to me is reallyket is differentiating companies that have more ability to make money versus companies that will have to make money again in the near future -- raise money again in the near future. we are in a commerce cycle. you don't want to write unlimited checks to companies. if you look at companies that are profitable, zoom did really well. a company with no near-term profitability did not do very well. at some point, you have to make money. emily: do you think there is a reckoning coming for companies that are not profitable? amazon is one of them. >> amazon is funded by their own cash flow. they don't have to raise capital. i can't remember the last time
amazon went and raised capital. point of about strength versus point of weakness. we lived through 10 years of bull market. i think a lot of companies are involved in many different issues. at some point, you have to drive more profitability. emily: you spent a lot of time sourcing tech deals in china. how much do you think is the fundamentals of these companies and how much is what's going on between the united states and china? >> a trade war is not good for anyone, but at some point all trade relationships have to be based on mutual respect and mutual health. i think everybody agrees that over the last decade the relationship was a front situation. fraught situation.
i think it's a bipartisan view a more respectful relationship with china and all of our trade partners. how optimistic are you that the relationship will get better? >> i think it is in the interest of both parties to have a better relationship. .here's a lot to work through i'm not very close to that situation, but i am optimistic for a good outcome. it will take some time. emily: snap just named a new cfo. there has been a lot of concern about executive turnover. once happening -- what is happening? >> snap was in the forefront of consumer space.
i think they've done a good job of assembling a great team. like any company that grows fast, there are some positives and some negatives. when i joined, there was zero revenue. when i left, there was $1.6 million annual revenue. i think the company continued to .nnovate full disclosure, i am still a shareholder. seeingoking forward to what the team will do. position isooks compromised right now. instagram still appears to be strong. how confident are you that snap could win back some of the users it lost or further disrupt social networking? >> the key thing to keep in mind spent on mobile
devices is only going to grow. game, snap-sum versus facebook. those are great stories, but ultimately, i fundamentally believe all of us are on the right side of history in that people are spending more and on mobile. not one company will take everything. it's impossible for one company to solve every problem. facebook has done a great job with instagram. snap has done a great job with camera. time will tell. but i think both can do very well. amazon, you are right, is not the only competitor in e-commerce. we see walmart making niche e-commerce companies focusing on brand. when are you going to launch?
>> late june, early july. emily: what are we going to see? >> number one is trust. most e-commerce is in the marketplace and when you are in canmarketplace, anyone poach something. subject to counterfeit and fraud. we saw that in china. we can guarantee everything you buy is real. 25 years, the internet was built on the premise of open platform. that brings chaos. find with usu israel. we stand by that. .he second thing -- is real we stand by that. the second thing is discovering. we give consumers more choices to discover products in different ways.
third, we are going to make a big commitment to convenience. shipping, free return, all those kinds of things. it's just the beginning. it takes a long time to build a business. hopefully, we will continue to and neww product innovation to the platform. emily: we will be watching late june and july for the lunch. thank you. , toshiba has spun in orderhip business to buy out shares in major tech companies. we will dig deeper. this is bloomberg.
selling their shares to toshiba memory for $4.5 million. microsofteement with on cloud gaming was not just a surprise to the industry. it also shocked the playstation division. almost twoent decades fighting microsoft in the market. finally, hbo is plotting a post game of thrones future. last night the network aired this season -- series finale of the most popular show ever. fans should not despair. there will be a new game of thrones prequel under the new owner, at&t. the series finale was watched by 19.3 one million viewers. will there prequel be as good? that is the question.
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